Making Tax Digital: how and when to get your accounting systems in shape

HMRC’s MTD initiative has some strict requirements for businesses with turnover above the VAT-registration threshold. As highlighted in previous blogs, affected businesses will need to keep their VAT records digitally. They’ll also need to file their VAT returns to HMRC using ‘functional compatible software’ – software or spreadsheets that can connect to HMRC via an application programming interface (API).

On 16 October, HMRC announced the deferral of Making Tax Digital (MTD) for some VAT categories, giving a six month delay on the need to comply. Those lucky enough to be given this extra time have until 1 October 2019 to prepare. However, it’s important not to use this delay to rest on your laurels and put compliance off, because reviewing and implementing new systems – should that be what you need to do to comply – takes time and its best to give yourself the chance to test things before D-day. Additionally, those not in the categories given the deferral, the deadline remains 1 April 2019 – meaning you have just five months left to get your accounting systems in shape.
 
Are your current accounting systems up to the job?
HMRC’s MTD initiative has some strict requirements for businesses with turnover above the VAT-registration threshold (£85,000). As highlighted in previous blogs, affected businesses will need to keep their VAT records digitally. They’ll also need to file their VAT returns to HMRC using ‘functional compatible software’ – software or spreadsheets that can connect to HMRC via an application programming interface (API).
 
Most businesses face some form of software or systems upgrade if they are to meet the MTD requirements. It’s therefore vital to consider how your business is currently calculating your VAT and filing its returns, then assess the options open to you.
 
For example, ask yourself:
 
  • are records already held digitally in the business?
  • how many financial systems are operated?
  • what reports are used to compile the VAT return?
  • are these digitally linked between source system(s) and the VAT return workings?
  • can your accounting system transmit VAT returns digitally to HMRC?
  • do you need a bespoke solution – for example, the creation of an API-enabled spreadsheet
Unless your business is using the latest version of a major accounting package or cloud accounting solution, some form of upgrade or bridging software solution will be required. If your accounting systems are more basic, you may  consider implementing a new accounting package altogether.


Cloud accounting can do the job
One solution worth considering is a move to the cloud. It’s a practical solution to the challenges of MTD, as all elements of the VAT process are retained within the software via the digital link with HMRC. A transition to cloud accounting will, therefore, enable your business to meet the requirements of MTD.
 
But that’s not all. There are many additional benefits to cloud accounting other than just MTD-compliance. For example, cloud solutions enable the sharing of real-time information, so both you and your accountant could be looking at your accounts data at the same time. Cloud solutions also offer flexibility, the potential to add new industry specific features and easily grow with your business as it develops and its needs change. Cloud solutions are also good for smooth cash flow, with monthly licence fees replacing any large upfront licence purchase cost. 
 
In our experience, an easy transition from desktop to cloud can be achieved – potentially in as little as half a day for some. Business-specific charts of accounts and codes can be retained, with two years’ worth of data brought across from your old systems for free. We’ll support your transition with training too, so you know exactly how to get the best use out of your new technology. 
 
When to make the change and upgrade?
A key question businesses have when considering the impact of MTD is when to undertake their systems upgrade or cloud transition. Year-end is one obvious option, so businesses with financial statements running to 31 December may wish to align with their year-end. However, successful transitions can also be made at month-end or even quarter-end so, given that MTD is mandatory for the majority of businesses from April, one of these may be your better option.
 
When deciding on your preferred timing, we strongly advise against leaving things to the last minute and suggest building in some flexibility to allow for any unexpected delays – take action well before the deadline to avoid any last-minute headaches.

For a free one hour systems review and advice on the right approach for your business, contact us or your usual Moore Stephens adviser.

 

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